US Central Bank Chief Foresees Subdued Growth But No Recession

The head of the U.S. Federal Reserve Board, Ben Bernanke, Wednesday told a congressional committee that the subdued pace of U.S. economic expansion should pick up slightly in the months ahead. VOA's Barry Wood has more on his testimony.

While some economists fear that higher oil prices and a weak housing sector could trigger recession, Federal Reserve Chairman Bernanke disagrees. He further suggests that the inflationary impact of a three-year-long increase in oil prices is being contained. He told the congressional panel he expects growth will gain momentum during the remainder of this year.

"The central tendency of the growth forecasts, which are conditioned on the assumption of appropriate monetary policy, is for real gross domestic product to expand by 2.25 to 2.5 percent this year and 2.5 to 2.75 percent in 2008," said Bernanke. "The forecasted performance for this year is about one quarter percent below what was expected in [last] February."

Slower growth over the past year, he said, results from weakness in housing.

In his appearance before the House Financial Services Committee, Bernanke gave no indication that short-term interest rates would be moving either higher or lower. They have been held steady at 5.25 percent by the central bank for over a year.

Concerning housing, Bernanke said prices are likely to remain weak for some time and there will be more foreclosures on properties where borrowers cannot meet their monthly payments.

The international economy, said Bernanke, is strong and likely to remain so. When asked whether China should float and revalue its currency - something many members of Congress have long been pressing China to do - the Federal Reserve chairman answered yes. It is, said Bernanke, in China's own interest to have a stronger currency.

"Without a flexible exchange rate, they're unable to run an independent monetary policy," he said. "And they're having some issues now with a bit of inflation and asset price changes that may reflect excess liquidity in their system."

Because China's trade surplus is so high, the foreign currency it has accumulated boosts the domestic money supply, raising the risk of inflationary pressure on the economy.

Referring to America's large trade deficit, Bernanke said while it poses no immediate problem efforts must be made to narrow the trade imbalance.